The Impact of Financial Development on Foreign Direct Investment in Nigeria

Main Article Content

Philip Ifeakachukwu Nwosa
Obiajulu Onyedikachi Emma-Ebere


The study examined the relationship between foreign direct investment and financial development in Nigeria for the period 1980 to 2015. Using the vector error correction model (VECM) technique, the study observed a negative relationship existed between financial market development and foreign direct investment in the long run while in the short run, a positive relationship existed between financial market development and foreign direct investment in Nigeria over the estimated period of 1980-2015. Therefore, the study recommended further development of the Nigerian financial market by the monetary authority given its positive influence on the inflows of foreign direct investment in the short run. There is also the need for more financial reform of the Nigerian financial system in order to bring more foreign direct investment into the country both in the long and short runs.

Financial development, Foreign Direct Investment, VECM, Nigeria


Download data is not yet available.

Article Details

How to Cite
Nwosa, P. I., & Emma-Ebere, O. O. (2017). The Impact of Financial Development on Foreign Direct Investment in Nigeria. Journal of Management and Social Sciences, 6(1).



Adaramola, A.O. & Obisesan, O.G. (2015) Impact of Foreign Direct

Investment on Nigerian Capital Market Development. International

Journal of Academic Research in Accounting, Finance and Management

Sciences (IJARAFMS), 5(1): 103-108.

Adebola, S.S. & Dahalan, J. (2011) Financial development and economic

growth: The role of stock markets and banking sector in Nigeria. Journal

of Sustainable Development in Africa, 13(7): 96–113.

Adeniyi, O., Ajide, B. & Salisu, A. (2015) Foreign Capital Flows, Financial

Development and Growth in Sub-Saharan Africa. Journal of Economic

Development, 40(3): 85-103.

Adeniyi, O., Omisakin, O., Egwaikhide, F.O. & Oyinlola, A. (2012) Foreign

direct investment, economic growth and financial sector development in

small open developing economies. Economic Analysis & Policy, 42(1):


Anochie, U.C., Ude, D.K. & Mgbemena, O.O. (2015) Foreign Direct

Investment (FDI) Flows in Nigeria: Pro or Economic Growth Averse?

IOSR Journal of Economics and Finance (IOSR-JEF), 6(4): 84-92.

Black, J. (2002) Dictionary of economics. United States: Oxford University

Press Inc., Pp. 175.

Bilir, L.K., Chor, D., Manova, K. (2013) Host country financial development

and MNC activity, mimeo.

Cuadros, A., Orts, V. & Alguacil, M.T. (2001) Openness and Growth: ReExamining Foreign Direct Investment,Trade and Output Linkages in

Latin America. Centre for Research in Economic Development and International Trade (CREDIT) Researh Paper, University of Nottingham, No.


Desai, M.A., Foley, C.F. & Hines, J.R. (2006) Capital controls, liberalizations,

and foreign direct investment. Review of Financial Studies, 19(4): 1433–

Desbordes, R. & Wei, S-J. (2014) The effects of financial development on

foreign direct investment. World Bank Group Policy Research Working

Paper, WPS 7065.

Dokua, J.N., Adjasib, C.K.D. & Sarpong-Kumankumac, E. (2011) Financial

market development and capital structure of listed firms-empirical

evidence from Ghanaâ€. Serbian Journal of Management, 6(2): 155-168.

Dutta, N. & Roy, S. (2008) Foreign direct investment, financial development

and political risks. Munich Personal RePEc Archive 10186.

Edu, G.T., Inaya, T. & Bassey, A.F. (2015) Foreign Private Capital Inflows

and Economic Growth in Nigeria. European Journal of Business and

Social Sciences, 4(08): 205–217.

Hermes, N. & Lensink, R. (2003) Foreign direct investment, financial

development and economic growth. The Journal of Development Studies

Ju, J. & Wei, S-J. (2010) Domestic Institutions and the bypass effect of

financial globalization. American Economic Journal: Economic Policy,

(4): 173-204.

Klein, M.W., Peek, J. and Rosengren, E.S. (2002) Troubled banks, impaired

foreign direct investment: the role of relative access to credit. American

Economic Review, 92(3): 664-682.

Konstantinos, S., Alexandros, G., Emmanuel, S. & Chatsivasileladou, S.

(2010) Financial development and economic growth: an empirical research

from Greece – Cointegration Test. International Conference on Applied


Korgaonkar, C. (2012) Analysis of the impact of financial development on

foreign direct investment: a data mining approach. Journal of Economics

and Sustainable Development, 3(6): 70–79.

Nwosa & Emma-Ebere Lamouchi, A. & Zouari, E. (2013) Financial development and capital flows:the effect onthe real exchange rate. Global Journal of Management and Business Research Finance, 13: 31–42.

Levine, R. & Renelt, D. (1992) A Sensitivity Analysis of Cross Country

Growth Regressions. American Economic Review, 82(4): 942-63.

Luca, O. & Spatafora, N. (2012) Capital inflows, financial development, and

domestic investment: determinants and inter-relationships. International

Monetary Fund Working Paper WP/12/120.

Ndekwu, E.A. (2013) An analysis of the monetary policy transmission

mechanism and the real economy in Nigeria. Occasional paper, No. 43,


Nwachukwu, T.E. & Egwaikhide, F.O. (2007) An error-correction model of

the determinants of private saving in Nigeria. A paper presented at the

African Economic Society (AES) Conference, Cape Town, South Africa,

July 2007.

Omran, M. & Bolbol, A. (2003) Foreign direct investment, financial

development, and economic growth: evidence from the Arab countries.

Rev. Middle East Econ. Fin., 1(3): 231–249.

Onyali, C.I. & Okafor, T. (2014) Foreign Direct Investment and the Nigerian

Economy: Vision 2020 Mission. International Journal of Business and

Finance Management Research (IJBFMR), 2: 8-16.

Otto, G. & Ukpere, W.I. (2014) Foreign Direct Investment and Economic

Development and Growth in Nigeria. Mediterranean Journal of Social

Sciences, 5(2): 713-780.

Pesaran, M.H., Shin, Y. & Smith, R.J. (2001) Bounds testing approaches to the analysis of level relationshipsâ€. Journal of Applied Econometric, 16: 289326.

Pradhan, R.P. (2010) Financial deepening, foreign direct investment and

economic growth: are they cointegrated. International Journal of Financial

Research, 1(1): 37- 43.

Prasad, E., Rogoff, K., Wei, S. & Kose, M.A. (2003) The effects of financial

globalization on developing countries: some empirical evidence. IMF

Occasional Paper 220 (Washington: International Monetary Fund).

Saibu, M.O., Nwosa, I.P. & Agbeluyi, A.M. (2011) Financial development,

foreign direct investment and economic growth in Nigeria. Journal of

Emerging Trends in Economics and Management Sciences, 2(2): 147-155.

Samadi, S., Fathi, S. & Tahmasebi, S. (2011) Impact of foreign direct

investment on financial development present to political corruption in the

countries of d-8. Interdisciplinary Journal of Contemporary Research in

Business, 3(5): 445–450.

Sghaier, I.M. & Abida, Z. (2013) Foreign direct investment, financial

development and economic growth: empirical evidence from North African countries. Journal of International and Global Economic Studies,

(1): 1-13.

Soumare, I. & Tchana, F. (2011) Causality between FDI and financial market development: evidence from emerging markets. Munich Personal RePEc Archive 31328.

Soumia, Z. & Abderrezzak, B. (2013) The determinants of foreign direct

investment and their impact on growth: panel data analysis for AMU

countries. International Journal of Innovation and Applied Studies, 2(3):


Ugbaje, D.O. & Ugbaje, H.E. (2014) Empirical Study of Financial Sector

Development on Economic Growth in Nigeria (1990-2010). International

Journal of Public Administration and Management Research (IJPAMR),

(3): 122-137.

Zadeh, H.A. & Madani, Y. (2012) Financial market development, fdi and

economic growth in Iran. Journal of Basic and Applied Scientific Research

(1): 228-230.